You’re in the prime of your life, healthy, active, and looking forward to enjoying all that life has in store. But amidst all that anticipation, a little voice inside your head keeps saying you won’t always be the way you are now. Since it is doubtful you have the power to see into the future; you have no idea if you will be a victim of declining health as you age. The best thing to do is to hedge your bets with coverage that offers both life and long-term care insurance wrapped into one policy.
This hybrid coverage takes the guessing game out of whether or not you should invest in a long-term care policy, knowing there is the possibility you may never need it. With this combination, the underlying approach is the life insurance, and the long-term care provision is added as a rider. When long-term care benefits are needed, the insurance company pays a fixed percentage of the policy’s monthly death benefit as an accelerated death benefit. Generally, long-term care benefits are around 2 percent of the policy’s death benefit but could be as high as 5 percent, depending on the policy. Benefits paid for long-term care are subtracted from your original death benefit. Your life insurance benefit remains intact if you never need long-term care benefits.
If you have a significant amount of cash value in a current life insurance policy, you may be able to purchase a combination policy through a 1035 exchange. The 1035 exchange allows for the direct transfer of accumulated cash value in one life insurance policy to another without creating a taxable event.
There are some drawbacks to combining life insurance and long-term care coverage. Many policies cap the amount allocated for long-term care benefits at 50 percent of the policy’s death benefit. A combination policy could leave you short of funds if you are confined to a care facility for an extended period.
Inflation is another factor you need to consider. Standalone long-term care policies usually offer inflation protection to adequately cover the rising costs of long-term care, and a combination policy may not provide the same inflation protection.
If you are considering purchasing a combination policy, there are a few guidelines to keep in mind:
· Purchase your policy from an insurance company with a solid financial outlook.
· If you plan to exchange your current life insurance policy, ensure the new one provides better coverage than your original one.
· Carefully compare traditional long-term care insurance with a combination policy to be sure the combination policy is suitable for your individual needs.
· Talk to an experienced insurance agent, Brian Gruss, about the options to ensure your long-term care needs.